Appeal from judgment of Court of Common Pleas of Dauphin County No. 519 Commonwealth Docket, 1967, in case of Commonwealth v. Baltimore and Cumberland Valley Railroad Extension Company.
Robert D. Myers, with him Rhoads, Sinon & Reader, for appellant.
Edward T. Baker, Deputy Attorney General, with him William C. Sennett, Attorney General, for Commonwealth, appellee.
Bell, C. J., Cohen, Eagen, O'Brien, Roberts and Pomeroy, JJ. Opinion by Mr. Justice Cohen. Mr. Justice Jones took no part in the consideration or decision of this case.
Baltimore and Cumberland Valley Railroad Extension Company (appellant) was incorporated in Pennsylvania in 1880 and immediately thereafter constructed a 26 mile railroad line from Waynesboro, Franklin County, to Shippensburg, Cumberland County. By a lease dated May 13, 1886, appellant leased the entire line and its other assets to Western Maryland Railroad Company for 50 years. This lease was renewed for another 50 years on June 27, 1931. Under the lease Western Maryland pays an annual rental of $24,930.00 and, as a convenience, pays it directly to appellant's stockholders. In addition, Western Maryland pays all taxes owed by appellant and all expenses incurred in operating the railroad.
Since completion of construction of the railroad line, appellant has engaged in no activities whatsoever. It has not paid any Corporate Net Income Tax, relying on the decisions in Commonwealth v. Delaware River R.R. & Bridge Co., 48 Dauph. 18 (1939), and Commonwealth v. Reading and Southwestern Street Railway Co., 54 Dauph. 277 (1943), which, in similar situations, held that such companies were not "doing business" in Pennsylvania as the Corporate Net Income Tax Act of May 16, 1935, P. L. 208, as amended, 72 P.S. § 3420a-n requires. However, beginning in 1965, the Commonwealth compelled appellant to file a Corporate Income Tax report and to pay that tax as provided in the Act of August 24, 1951, P. L. 1417, as amended, 72 P.S. §§ 3420n-1-3420n-12.
For 1965 appellant reported income (per its Federal taxable income) of $24,930. On this amount the Commonwealth settled a tax of $1,495.80. Appellant protested the settlement, unsuccessfully, through the administrative process and the lower court, and has now appealed to this Court.
By its terms the Corporation Income Tax Law applies to appellant. In Section 2, 72 P.S. § 3420n-2, it states that a corporation includes both domestic and foreign corporations "carrying on activities in this Commonwealth, or owning property in this Commonwealth. . . ." Appellant, however, asserts that our Court has restricted application of this statute to foreign corporations engaged in interstate commerce activity in Pennsylvania and that it may not, therefore, be applied to a domestic corporation such as appellant. To this effect, appellant cites Commonwealth v. Eastern Motor Express, Inc., 398 Pa. 279, 157 A.2d 79 (1959).
In Eastern Motor Express we dealt with the application of the Corporation Income Tax Law to an Indiana corporation carrying on an exclusively interstate business as a common carrier in Pennsylvania and elsewhere. We upheld the validity of the law and its application to that taxpayer. In considering the factual situation presented in Eastern Motor Express, we remarked that the law covered only foreign corporations engaged solely in interstate commerce in Pennsylvania. From this, appellant, being a domestic corporation, concludes it is not subject to tax under this law.
Apart from the fact that in Eastern Motor Express we were concerned solely with the case of a foreign corporation and were attempting to delineate a particular activity of such a corporation which fell ...